[later12]

Originally Posted by K-9

What makes you think they would have gone along with "the cheapest bailout in history" line?

Nothing at all, I'm not suggesting they would have had done so. But when Lenihan used that term, we did not at that time understand the extent of the problem that was emerging. That's the only point I'm making. In some alternate universe, the Guarantee might have had turned out to be the cheapest bailout in history. People love to say "ah I always knew things were going to get this bad" but I'm not quite sure that's true.

It's very easy to look back on fiscal policy and say "that was a decision which led to an unsustainable fiscal and economic situation for the sovereign", but when you're going through it, that clarity does not exist. Sustainability is a bit like a structural deficit: you only ever really understand it in hindsight, the further you are from the time series in question, and even then there are a myriad of interpretations of what sustainability actually means or how its can be arrived at in empirical terms.

Don't forget that despite what you or I may think today at 10am on the 26th of May 2012, we are being told that Ireland's debt level, which is expected to peak at 119% of GDP is still sustainable. We may not be told the same in one or two years time.

[mediator1964]

Originally Posted by PopeBuckfastXVI

The treaty doesn't address the reasons for our economic collapse, it's not designed to. Our collapse was due to a self inflicted private debt bubble, followed by Fianna Fail's disastrous decision to provide a blanket guarantee of all Irish banks.

This treaty is about ensuring that no government in the eurozone (which has signed up to the treaty), will run large structural deficits as a policy, without worrying about racking up debt. This is because if those debts become unsustainable and that government defaults we are all in trouble because we use the same currency, their actions affect us, not just them. This does not preclude giveaway budgets and excellent public services, so long as they are not provided on unsustainable borrowing.

Alongside that signing this treaty gives access to a fund which can be used by distressed countries (such as ours) who cannot access the private bond markets without incurring serious financial penalties in the form of increased rates. The reason this so called 'blackmail' clause is built into this treaty is that the fund should be only accessible to countries who have signed up to being financially responsible, and indeed why should countries who wish to borrow recklessly have access to the insurance policy of those who are showing more restraint, and funding the thing?

I can't tell you how to vote though, you'll have to decide that for yourself

Thank you for that concise explanation.

It seems like while our house is burning down the politicians have got together and said "Look over here there is a pretty kite in the sky"

[meglome]

Originally Posted by mediator1964

Thank you for that concise explanation.

It seems like while our house is burning down the politicians have got together and said "Look over here there is a pretty kite in the sky"

Hmm that's not what I got from that at all.

[K-9]

Originally Posted by later12

Nothing at all, I'm not suggesting they would have had done so. But when Lenihan used that term, we did not at that time understand the extent of the problem that was emerging. That's the only point I'm making. In some alternate universe, the Guarantee might have had turned out to be the cheapest bailout in history. People love to say "ah I always knew things were going to get this bad" but I'm not quite sure that's true.

It's very easy to look back on fiscal policy and say "that was a decision which led to an unsustainable fiscal and economic situation for the sovereign", but when you're going through it, that clarity does not exist. Sustainability is a bit like a structural deficit: you only ever really understand it in hindsight, the further you are from the time series in question, and even then there are a myriad of interpretations of what sustainability actually means or how its can be arrived at in empirical terms.

Don't forget that despite what you or I may think today at 10am on the 26th of May 2012, we are being told that Ireland's debt level, which is expected to peak at 119% of GDP is still sustainable. We may not be told the same in one or two years time.

Plenty questioned blanket guaranteeing the banks and Europe definitely seemed pissed off about it. Ireland was the only country that did it. Do you think they would have ok'd it, seriously?

[later12]

Originally Posted by K-9

Plenty questioned blanket guaranteeing the banks and Europe definitely seemed pissed off about it. Ireland was the only country that did it. Do you think they would have ok'd it, seriously?

In the last post where you asked that, I did reply "I'm not suggesting they would have had done so."

I'm afraid anyone who says they would or wouldn't is saying something that is impossible to confirm.

What we do know is that these EU leaders and authorities have repeatedly said that Ireland's government debt is sustainable ex post, and anyway the Guarantee would not actually have affected the structural or proportional deficit/debt metrics since 350bn guarantee was merely contingent and notional. It's not quite clear what input this Treaty would even give them beyond the very vague co-ordination provisions.

[hatrickpatrick]

Originally Posted by PopeBuckfastXVI

Running a surplus certainly didn't create any austerity that I could see, also didn't prevent the private debt bubble, but then the rules aren't designed to prevent private debt, only unsustainable public debt, like Greeces.

This is my main argument against. It addresses the wrong problem. Government spending was indeed out of control, but the deeper issue of the entire financial and monetary system being poorly designed for the 21st century are not being addressed, and until they are, IMO anyone who claims that this entire problem can be solved by controls and limits purely on government spending is sorely mistaken.

This treaty wouldn't have prevented Anglo's misdeeds for instance, nor would it have solved the fundamental problem which is that banks are too big to fail, and customer savings are put at risk by bad lending policies. This is what needs to change, not government fiscal policy alone.

[Scofflaw]

Originally Posted by hatrickpatrick

This is my main argument against. It addresses the wrong problem. Government spending was indeed out of control, but the deeper issue of the entire financial and monetary system being poorly designed for the 21st century are not being addressed, and until they are, IMO anyone who claims that this entire problem can be solved by controls and limits purely on government spending is sorely mistaken.

This treaty wouldn't have prevented Anglo's misdeeds for instance, nor would it have solved the fundamental problem which is that banks are too big to fail, and customer savings are put at risk by bad lending policies. This is what needs to change, not government fiscal policy alone.

Those sorts of issues are being addressed by things like the establishment of the European Banking Authority: http://www.eba.europa.eu/cebs/media/...ial-Summit.pdf

The difference is that we're not voting on those parts, whereas we are voting on the fiscal limits - but that doesn't mean the fiscal limits are the full extent of what is being done.

cordially,
Scofflaw

[ixtlan]

It's worth noting that the treaty does not just affect Ireland, and so the question of how it would have affected us pre-bust can't be taken in isolation.

Enforcement of the 60% debt rule would have forced Italy to address their competitiveness problems much sooner. Also more supervision of budgets might have brought the Greek issue to the foreground much sooner. And of course even Germany and France were breaching the rules, and stopping that might have restricted credit flows in Europe to some extent.

So, even if the property bubbles still happened here and in Spain, the EU might have been better able to handle it. Anyhow, regardless of how structural deficits might have been viewed in the past, you can be darn sure that such bubbles will be noticed in the future and action will be taken to make corrections. In the past states preferred to look the other way as regards how other states managed their finances. Now it's understood that a common currency does require supervision.

Ix.

[swampgas]

Originally Posted by later12

Part of it probably would have been; there are things called cyclical sensitivity measurements which are an econometric exercise designed to catch this sort of thing. But there are any number of methods of calculating the structural deficit, with widely vacillating results depending on the methodology and the benefit of hindishgt. For example, in 2006 the EU Commission said Ireland enjoyed a structural deficit of just 2.2% while the IMF said it was well more than twice that, at 5.6%. In hindsight, both would say something different.

Given that the range of figures in 2006 for structural deficit (2.2% - 5.6%) is well above the 0.5% proposed in the treaty, surely if the 0.5% limit had been in place, the government may have been forced to address the over-reliance on the property sector sooner?

Although I suspect that the real driver of change in future will not be the (new) rules by themselves, but the experience of having passed through the current crisis.